With IPLY in the gutter and BioWare on top of the world, there really is no point in keeping the real reason IPLY and BioWare split up a secret anymore. Rob Bartel discloses the information and clears up more than a few misconceptions on the NWN2 Forums:

To be honest, it really wasn't even an issue of bad blood and vitriol. The simple fact of the matter was that, given the financial situation at Interplay at the time, we didn't feel that they had the ability to bring NWN to market (i.e. actually get it onto store shelves where it would sell). There was also a secondary issue of some unpaid BG royalties, I believe, but the bulk of our concern was regarding the future rather than the past. NWN was an immense project and largely self-financed so you can understand why we were worried.

Everything worked out in the end. Interplay actually received a timely and much-need cash influx from Atari in exchange for NWN and the D&D rights, Atari gained an excellent flagship title for their rebranding effort (prior to NWN, they published under the Infogrammes name), and we were able to get NWN out to the public, recoup our losses, and ultimately set us down the financial course we're currently on.

As for the perceived falloff in quality for various BioWare & Black Isle games during that time period, my feeling is that the bulk of the problems ultimately revolved around money. Everyone was tightening their belts in order to get through a tough period. BioWare's finances are thankfully a lot more stable now and I suspect that all of the Black Isle people working on NWN2 feel a lot more secure sailing under the Obsidian banner.

Hope that clarifies,
Rob Bartel
Lead Designer
BioWare Community Live Team